The errors that are discovered at any stage of the accounting stages must be corrected immediately, and the method of correcting the error differs according to the stage or place in which the error was found.
Various companies and business establishments fall into many accounting errors along the stages of accounting treatments for their various financial businesses, and at certain stages these companies may discover some errors that need immediate correction and treatment.
The method by which we deal with accounting errors differs according to the stage or place in which the error is located.
In this new article on the "Program Idea" educational blog, we will explain to you ways to correct accounting errors within companies and commercial establishments.
What are the ways to correct accounting errors within companies?
As mentioned, the method of correcting accounting errors varies according to the stage as well as the location of the problem. According to this classification, error correction methods can be divided as follows:
As mentioned, the method of correcting accounting errors varies according to the stage as well as the location of the problem. According to this classification, error correction methods can be divided as follows:
Correction of errors that appear when recording in the journal
Correct errors that occur in the ledger
Correction of previous years' mistakes
Now, we explain each of them separately in detail; To be able to compare and differentiate between them…
Correct errors that occur in the ledger
Correction of previous years' mistakes
Now, we explain each of them separately in detail; To be able to compare and differentiate between them…
Correction of errors that appear when recording in the journal
In the event that an accounting error is discovered at the stage of recording in the journal using the manual system, the error may not be corrected or amended by deletion or deletion as usual.
In the event that an accounting error is discovered at the stage of recording in the journal using the manual system, the error may not be corrected or amended by deletion or deletion as usual.
Also, if an error occurs when using accounting software, it cannot be corrected or amended either; Because there are some programs that do not give the accountant the authority to amend the same wrong entry.
So what is the solution in this matter? There are two basic methods for correcting accounting errors that are discovered at the stage of recording in the journal, which are the long (indirect) method, and the short (direct) method.
First: the prolonged (indirect) method.
Through this method, correcting the wrong entry depends on recording two entries, which are as follows:
Through this method, correcting the wrong entry depends on recording two entries, which are as follows:
Recording the wrong entry cancellation:
In this entry, the wrong entry is canceled by recording a reverse entry, so that the debit party becomes a credit party and the credit party becomes a debt party, and so on.
In this entry, the wrong entry is canceled by recording a reverse entry, so that the debit party becomes a credit party and the credit party becomes a debt party, and so on.
Correction logging:
After the cancellation entry is registered, the correct entry is then registered.
After the cancellation entry is registered, the correct entry is then registered.
💡 Application example:
Suppose that the accountant of your company made a wrong entry for the sale of goods on the account in the amount of $ 500, by recording the entry as follows:
Second: The Shortcut (Direct) Method
The second method used in correcting errors that appear when recording in the journal is the short (direct) method.
The second method used in correcting errors that appear when recording in the journal is the short (direct) method.
Based on this method of error correction, one correct entry is recorded which includes canceling the wrong entry and proving the correct entry.
However, this shortcut (direct) method may not be suitable for correcting all accounting errors that may occur in the journal; Therefore, many accountants prefer to rely on the long method rather than the short one when correcting accounting errors, in order to facilitate the error review process.
Correct errors that occur in the ledger
The second type of accounting errors that occur in the financial departments of companies and various business establishments, as well as commercial establishments, are those that occur in the ledger.
The second type of accounting errors that occur in the financial departments of companies and various business establishments, as well as commercial establishments, are those that occur in the ledger.
Accounting ledger errors either occur when posting the financial transaction from the journal to the ledger, or when tabulating it on the ledger page, or when balancing.
While these errors are discovered when the balance is imbalanced, or by chance, or by audit, or the error was discovered when recording the financial transaction in the journal and then the error was posted to the ledger and so on.
Error correction is easier when accounting errors are discovered in the ledger than it is if the error is discovered in the journal.
This is because adjusting the error by crossing out, erasing, and filling in is allowed in the ledger, unlike the case in the journal whose nature does not allow for crossing out, filling in, and other various modifications.
Correction of previous years' mistakes
As for the third common type in cases and methods of correcting accounting errors, it is the method of correcting previous years' errors.
As for the third common type in cases and methods of correcting accounting errors, it is the method of correcting previous years' errors.
According to International Standard No. (8), errors of previous years are defined as errors that occur in previous financial periods for different companies and institutions and are discovered in the current financial period.
These errors range from being caused by the accountants' oversight, committed intentionally, or being technical errors in the first place.
Whatever the reason, in the event that an accounting error was discovered in the current period and this error occurred in the previous financial period, the accountant must correct this error in the period in which the error was discovered and not in the current period in which we are present. This is for the main reason that this error does not extend to the lists of the current period.
It is well known that the accounts are divided into permanent accounts and temporary accounts, and the method of correcting the error differs according to its impact on the account, in terms of whether the account is one of the permanent accounts or if the error affected the account.
An account from the temporary accounts as the income and expense account. We illustrate this by the following example:
Example
The balance of the debtor’s account (the cooperation company) recorded in the company’s books appeared at the end of March of the year 2016 at a value of $20,000, and upon matching and reviewing the accounts with the debtor, it was found that there was a payment from the cooperation company in the month of 12/2015 with a value of $5,000 registered by mistake as a payment of Optimism company account.
Required:
What is required here is to correct the error in 2016.
Solution method:
In this example, we find that the error occurred in the year 2015, and it was discovered in the year 2016, that is, after closing the accounts
We also find that this error has affected one of the permanent accounts, which is the debtors' account. And in this h
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